MGM activist renews REIT push after Kerkorian’s death

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Jonathan Litt, who led an unsuccessful proxy fight at MGM Resorts International this year, renewed his call for a restructuring of the casino company, citing plans by the estate of Kirk Kerkorian to sell its 16 percent stake.

MGM Resorts surged as much as 4.8 percent after Litt, founder of Stamford, Connecticut-based Land & Buildings Investment Management LLC, said Kerkorian’s death makes it more likely the company will have to take action. In a letter to shareholders on Tuesday, he said that could involve moving its properties into a real estate investment trust or putting MGM Resorts up for sale.

“We continue to believe MGM is severely undervalued, with a net asset value of at least $30 per share,” he said.

Litt resumed his campaign to boost MGM Resorts’ stock price after a previous activist effort was beaten back in May. Prior to Tuesday’s trading MGM Resorts, the largest owner of casinos on the Las Vegas Strip, had slumped 8.6 percent since Kerkorian, its largest shareholder, died on June 15 at age 98.

Kerkorian’s will directs his holding company Tracinda Corp. to sell its stake in MGM Resorts, valued at $1.6 billion at current prices.

While there is no deadline, the estate’s sale plan puts pressure on Chairman and Chief Executive Officer James Murren to boost the stock, analysts and investors told Bloomberg News. Tracinda has two representatives on the MGM board.

“The one thing we all agree upon is that the stock is undervalued,” MGM Resorts Chief Financial Officer Dan D’Arrigo said in a telephone interview Monday, prior to the letter’s release. “I don’t think that changes.”

In May, MGM Resorts fought off an attempt by Litt to elect four nominees to its board. Litt dropped his effort after failing to win the support of some of MGM Resorts’ largest shareholders, including Kerkorian.

The casino company’s investors have changed since Land & Buildings began its campaign, Litt said in his letter. The sale of Kerkorian’s shares would remove an obstacle to forming a real estate investment trust, he said. Ownership of REITs is capped at 10 percent per investor.

Moving some or all of the Las Vegas-based company’s casinos into a real estate investment trust could boost MGM Resorts stock because REITs don’t pay federal income tax, passing earnings directly to investors instead.